Good news may be on the way for defrauded student loan borrowers

A recent court decision may mean that much-needed debt relief will finally be on the way for students defrauded by unscrupulous for-profit colleges and universities. The decision, handed down by a federal judge earlier this month, finds that the U.S. Department of Education – and its leader, Secretary Betsy DeVos – acted in an “arbitrary and capricious” manner by delaying Obama-administration rules regarding debt forgiveness and forbearance for affected students.

The lawsuit, brought by 20 attorneys general (including 19 states and the District of Columbia) and former students, found that the DOE’s delay in implementing the rules to be without merit. The rules, enacted back in 2016, should have been implemented on July 1, 2017, but DeVos halted that, saying that the rules as written were subject to abuse by students. No further rulemaking has been done since that time, however, and affected students are still on the hook for millions of dollars’ worth of predatory student loan debt.

The judge still has to determine whether the delayed rules will now go into effect, or if the current DOE will be given a brief opportunity to implement their own rules on the matter. A concern raised by the DOE in this lawsuit was that the past rules were muddled and confusing, as well as unclear as to how to determine if students really were the victims of predatory lending. The DOE hasn’t yet revealed any policy aimed at correcting these supposed shortcomings, though, and since the impacted students have already been left on the hook for well over a year, it’s entirely possible that the court will simply order the DOE to implement the old rules without delay.

Having student loans forgiven without default or the need for repayment would be a huge financial boon for these students. While bankruptcy relief is available in certain limited circumstances, current industry rules do not offer much hope to the majority of afflicted student loan borrowers having trouble making their payments.